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H&R Block, Inc. Message Board

  • berkeleyfarms berkeleyfarms Mar 9, 2002 11:22 AM Flag

    Test question- sale of residence

    My clients tax return for 1999 was audited and the first I heard about it was at lunch time during the audit. The IRS went to the home because of the home office deduction.
    The clients live around the corner from our seasonal office, and I happened to be working the day in early January. The audit preparers called our office asking for a Pub 17 for 1999 and when she learned I was there said she would stop by to pick it up during lunch break. She double parked, honked and I brought the Pub out to the car. Thats when she showed me the worksheets for sale of personal residence, sec. 121 exclusion, forms 4797 and said she thought something was missing. She wasn't too worried because the auditor wasn't focusing on it, and was concerned with rate for milage 33.5 cents v 34 cents per mille.
    I offered to discuss it over lunch but she had other lunch plans, and that was all I heard of it, until the client called last week with the bad news that the IRS wants more money from him.

    I had accounted for all the depreciation taken during the rental period acording to the owrksheets and my understanding of 1250 gain and sec 121. Totalled all depreciation allowed or allowable: separated out depreciation taken after 5/5/1997 which went to income via the 4797 (capital gains, I believe); the other depreciation lowered th basis which increased the other gain, which was excluded under sec. 121.

    What do you think??

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    • Two questions:

      1. What was the IRS auditor questioning specifically?

      2. Why wasn't an HRB representative present at the audit?

    • appears to me that you did everything right assuming that the depreciation after 5/5/97 was reported as section 1250 gain on schedule D

    • I think the IRS found something wrong with the return....OIH is very fertile territory for the IRS to search for that and other problems. (I recall from some years gone by when we were told OIH = automatic audit.)

      Although it sounds as if proper CYA transpired re the home sale, my guess is some Sch C stuff was not mutually satisfactory.

      Let's hope you sold her POM, XIRA, a brokerage account, and a will update packet. Don't bother to sweat the tax-related stuff. If you don't meet your quota the audit will be someone else's problem soon.

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